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Changes to FHA Mortgages Announced

By: | February 1st, 2013

FHA (the Federal Housing Administration) has released new mortgagee letters that officially announced changes to FHA mortgages. While FHA mortgages are designed in a way so that low to middle income households can attain homeownership, the changes are being made in order to improve the stability of the agency.

The first change is for annual mortgage insurance premiums. The annual mortgage insurance premium for FHA conforming mortgages will be increased .10% to 1.3%. For FHA jumbo mortgages that are above $625,500, the annual MIP is increasing .05% to 1.35%. This new rule does not affect the FHA streamline with reduced fees for loans that were endorsed prior to June 1, 2009. New MIP premiums are effective for case numbers assigned on or after April 1, 2013.

Borrowers will be required to pay the annual mortgage insurance premiums for the life of the loan. This change affects all borrowers who have a down payment of less than 10% of the purchase price at closing. In the past, when FHA loans dropped to a loan to value of 78%, the annual MIP was canceled. This is effective for case numbers assigned on or after June 3, 2013.

Credit scores (FICO) that are below 620, as well as, debt to income ratios that are greater than 43% will require that the loan go through manual underwriting. For loans that fall into these categories, the lender will be required to show “compensating factors” and the reason why the loan should be approved for closing. This is effective for case numbers assigned on or after April 1, 2013. The FHA streamline refinance is also exempt from these new rules.

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